A subsidiary owned by the Institute for Financial Management and Research (IFMR) Trust recently closed the world's first multi-originator securitization of micro-loans. The securitization saw a series of notes issued in which with investments from the treasury department of Dhanalakshmi Bank in the senior tranche comprising 77 percent and IFMR Capital Mosec I investing in the remainder subordinated strips.

In a media release, Sucharita Mukherjee, Chief Executive Officer of IFMR expressed her excitement. She said, "...this transaction demonstrates the ability of smaller, but high quality Micro Finance Institutions (MFIs), to access capital markets through the multi-originator structure. Most small and medium size MFIs lack substantial amounts of capital to generate unencumbered portfolio, and therefore cannot utilize the benefits of securitization on their own."

IFMR Capital structured, arranged and invested in the subordinated strip of the Rs. 30.8 crore ($ 6.5 million) transaction. Kartikeya Singh, the Vice President of IFMR told Bar & Bench today, "This is the first of its kind in the world. I personally do not know of any such transaction till date. The total transaction is backed by 42,000 micro-loans originated by Asirvad Microfinance, Sahayata Microfinance, Satin Creditcare Network, and Sonata Finance."

Mumbai-based Sawant Singh [pictured], co-founder of Phoenix Legal, led his team comprising Akanksha Midha and Jijo Cherian in advising on the transaction. "It is no plain vanilla transaction," says Sawant Singh. "Convincing all the players of the deal dynamics and ensuring that all of them are on the same page on a transaction that is happening for the first time was challenging," he adds.

The microfinance sector is poised to usher in more work for the Banking & Finance practice group. Kartikeya predicts that by the end of 2010, the sector would have transactions worth between Rs. 1,500 and 2,000 crore ($327 - 435 million). "We will soon see a time when we will be doing one such deal every week," he says. Market sources indicate that the microfinance market is scheduled for a boom owing to the small size of the loan itself, the low default rate and the short cycle of the loan.

Sawant Singh believes that the sector is poised to bring in more business for lawyers. "Microfinance as a business is booming. There are multiple issues involved in the areas of resource raising, private equity, foreign direct investment, deployment, securitization etc. which require lawyer input.  With an increasing number of sophisticated and organized players entering this market, obtaining 'sign-offs' from lawyers will be the norm."